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After a retiring from a successful business career, you would like to make a donation to your university. This donation will go into the school's
After a retiring from a successful business career, you would like to make a donation to your university. This donation will go into the school's endowment pool and the returns generated from the donation will support the salary of a new professor in the business school on a perpetual basis. The university expects to earn returns of 5.5% on its endowment pool. You may assume that any listributions to support the salary will be made annually. Part A) You can make a donation today ( t=0 ) in the amount of $2,500,000. The first cash flow distribution from your donation to cover the professor's salary will take place in one year (at t=1 ). Whic of the following is closest to the annual salary payment that can be made as a result of your donation? A. $137,500 B. $454,545 C. $2,500,000 D. $100,000 Part B) After further discussions, the university determines that the employment agreement with the new professor will call for annual salary increases of 2%. Given this new requirement, and assuming the first salary distribution will still occur one year from today, what is the starting salary (at t=1 ) that can be supported with your $2,500,000 donation? A. $87,500 B. $187,500 C. $140,250 D. $50,000
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